Your Bank's Financial Partner

The stock of a Bank is its currency, just as the Dollar is currency for the USA, the Yen for Japan or the Peso for Mexico. In the same way that country's currency reflects its economic worth in the international market, a Bank's "currency" reflects and stores value for shareholders and provides a medium or exchange for the Bank to use in transactions such as mergers or other expansionary activity. This fundamental valuation medium, the stock of the Bank, must be protected and nurtured in the marketplace. It is, therefore, an absolute necessity for a community Bank to have the advantage of a strong market maker for its shares.

On the most basic level, the share price must reflect the fundamental progress of the Bank. Further, this value must be available to the marketplace via a reasonable liquidity. That is to say, shareholders must be able to buy and sell stock in the Bank as they wish. Obviously, this is within the context of reasonable trading activity, as no community bank can provide the liquidity present in an IBM or like security, but fair exchange capabilities must be provided to the shareholder. In any endeavor, reaching a desired end such as this requires planning and effort; in the case of community banks, it involves associating and working with a qualified market maker.

A market maker is an adequately capitalized Broker/Dealer firm personified by individual representation. This representation personally interfaces with the Bank, personnel, shareholders, and the investment community in order to provide a fair and liquid market in the shares of the Bank. The resultant value, liquidity, and recognition are key goals that can be attained through this process.

The relationship between the Bank and its market maker consists of a free and complete flow of information in both directions; i.e., while the market maker must have at his disposal all the current public information on the Bank, a good market marker will ensure that the Bank is kept abreast of the status of its shares in the market. This information should go above and beyond just price information; a market maker can relay the tone of the market, size of potential buy or sell side interest, and relate how the Bank's shares are trading relative to its peer group. A good market maker will also work to ensure that the progress of the Bank is communicated to the investment community. This is accomplished via word of mouth as well as published reports or bulletins.

It occurs from time to time that unexpected circumstances arise such as the sudden appearance of a relatively large block of stock on the market. A good market maker will have his networking process in place and is willing to commit capital to buy the block of stock onto the trading desk. By doing so, he can keep the market price of the Bank shares within acceptable ranges while calling upon an established relationship base to feed the larger supply into the market in an organized manner. For this reason, it is important that the market maker know the Bank, staying in frequent contact with Bank personnel, from the Chairman of the Board to tellers at the branches. Additionally, it is important that the Broker/Dealer be well-capitalized and willing to commit capital in the market process.

Protecting share value from short-term aberrant price swings is a defensive attribute of a strong market maker system. On the offensive side, however, it is crucial that the fundamental progress of the Bank be reflected in the stock price. If a Bank has profitability that is consistently higher than its peers, the price of the stock relative to earnings and book value will in all likelihood reflect a premium. A Bank can accomplish this by letting the community know about its financial strength through publicity, written and oral, and also by having a market maker in place that will work within the investment arena to give out the same message through aggressive pricing.

It is understandable that the workings of the securities industry, and especially the intricacies of the market making process, are foreign to the boards and management of community banks. However, in this day of merger activity and active stock markets, it is crucial that a Bank's "currency" be handled efficiently in the marketplace. While there are complexities and nuances involved, the "rubber-meets-the-road" world is quite basic - Professional Capability + Communications Networks + Work + Patience = Fair Pricing and Adequate Liquidity. A solid market maker can make this formula work.